While the advanced economies can rely on their central banks to support massive fiscal stimulus in response to the COVID-19 crisis, many developing countries' hands are tied by higher borrowing costs. This is both unfair and unsustainable, pointing to the need for a new, truly global monetary mechanism.
PRINCETON – COVID-19 is dramatically widening a global divide that was evident long before the current crisis. Only some countries have been able to cover the costs of the pandemic and lockdowns with large fiscal measures, owing to support from central banks that are buying up large quantities of government debt. Most other countries are facing rising borrowing costs and thus cannot afford a robust fiscal response. Indeed, current borrowing terms have split the world into financial haves and have-nots – or, rather, cans and cannots. If this division persists, it may derail globalization entirely.
PRINCETON – COVID-19 is dramatically widening a global divide that was evident long before the current crisis. Only some countries have been able to cover the costs of the pandemic and lockdowns with large fiscal measures, owing to support from central banks that are buying up large quantities of government debt. Most other countries are facing rising borrowing costs and thus cannot afford a robust fiscal response. Indeed, current borrowing terms have split the world into financial haves and have-nots – or, rather, cans and cannots. If this division persists, it may derail globalization entirely.